FDI IN RETAIL

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What is FDI ?
FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the domestic market excluding the investment in stock.

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What is FDI ?
FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the domestic market excluding the investment in stock. For instance: An American company taking a majority stake in a company in China.

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What is FDI ?
Foreign investment Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

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What is FDI ?
Foreign investment Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

Foreign investment through

Foreign institutional investment

Foreign Direct investment

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What is FDI ?
Foreign investment Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

Foreign investment through

Foreign institutional investment

Automatic Route No permission required

Foreign Direct investment

Government Route Approval/ license required

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MODES OF FDI

BY TARGET

BY MOTIVE

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MODES OF FDI
Mergers and Acquisitions Horizontal FDI Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI

BY TARGET

BY MOTIVE

Resource-Seeking Market-Seeking Efficiency-Seeking Strategic-Asset-Seeking

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FDI IN RETAIL IN INDIA

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The Broad Retail Sector In India

Organized Retail Unorganized Retail

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The Broad Retail Sector In India

Organized Retail
Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc basically involving the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganized Retail
Unorganised retailing, on the other hand, refers to the traditional formats of the retail industry involving example, the local kirana shops the corner stores, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. The latter involves a large majority of the indian populace that is involved in the retail industry

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FDI policy in Indian Retail Sector

Single brand retailing
51 % Allowed

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FDI policy in Indian Retail Sector

Single brand retailing
51 % Allowed

Cash and carry model

100 % Allowed

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FDI policy in Indian Retail Sector

Single brand retailing
51 % Allowed

Cash and carry model

100 % Allowed

But what exactly does this mean?

Multi-Brand Retail

Not Allowed

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Single Brand Retail

Conditions for Single Brand Retail: Should be a single brand Should be sold under the same brand internationally It would only cover products branded during manufacture

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Cash & Carry Model

Conditions for Single Brand Retail: Cash and carry businesses accept only cash for their product or services (provide the optimum price but with minimal conveniences.) Likewise, once products have been purchased, the customer is responsible for carrying their products away from the place of purchase. No cart assistance services are offered, nor are credit cards or credit accounts of any kind accepted Cash and carry businesses often exist in a warehouse, as is the nature of many wholesalers.

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Multi-Brand Retail
Conditions for Single Brand Retail: Sale of multiple brands under one brand Multi-brand retail comes in different formats like supermarket, hypermarket, compact hyper and the ubiquitous mall. Proposal to allow foreign investments upto the tune of 51% in this sector.

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What are global retailers say about their prospective markets???

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FDI in Retail: Challenges faced by Industry

SKILLED WORKERS INFLATION COMPETITION

TAXATION POLICIES

REAL ESTATE PROBLEM

PROBLEM IN RAISING FUNDS

MARKET POWER

SUPPLY CHAIN MANAGEMENT

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FDI In Retail- A Policy Perspective, - Opinion of FICCI and ICICI

FDI can be a powerful catalyst to spur competition in the retail industry. * It can bring about: * Supply Chain Improvement * Investment in Technology * Manpower and Skill development * Efficient Small and Medium Scale Industries * Increase in exports

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Pros for Allowing FDI in Retail

Indias local enterprises will potentially receive an upgradation with the import of advanced technological and logistics management expertise from the foreign entities. The government has an opportunity to utilize the liberalization for achieving certain of its own targets: I. improve its infrastructure II. access sophisticated technologies III. generate employment for those keen to work in this sector FDI would lead to a more comprehensive integration of India into the worldwide market and, as such, it is imperative for the government to promote this sector for the overall economic development and social welfare of the country.

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Pros for Allowing FDI in Retail

Employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail. 10 million jobs to be created in the next three years in the retail sector. Policy mandates a minimum investment of $100 million with half the amount being invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing.

Salutary impact on food inflation from efficiencies in supply chain.

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Benefits for Indian Agriculture from FDI in Retail

Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.

Farmers benefited through direct marketing and contract farming programme.

Improves farm production through modern techniques.

Increasing availability of low interest credit for farmers.

Helps farmers secure remunerative prices by eliminating exploitative middlemen.

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Cons of FDI in India

Move will lead to large-scale job losses. Global retail giants will resort to predatory pricing to create monopoly Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. Opponents of the FDI feel that liberalization would jeopardize the unorganized retail sector and would adversely affect the small retailers, farmers and consumers and give rise to monopolies of large corporate houses which can adversely affect the pricing and availability of goods. They also contend that the retail sector in India is one of the 2 the chain of food supply, from the farm where it is produced to the consumer major employment providers and permitting FDI in this sector can displace the unorganized retailers leading to loss of livelihood.

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What Lies Ahead?

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FDI Success story China

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How FDI is projected to effect the Indian economy?

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GRDI Position : 3rd Size : $ 400 billion Growth Rate : 13% GDP contribution : 12% Major sector : Food and Grocery Employment : 2nd largest industry (35.06 million)

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Major Retail Players Entering Into India

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Future Predictions

Expected Growth
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2011 2013 2018 0.35 0.59 0.83
CAGR 10%

1.3

In the last four year, the consumer spending in India climbed up to 75%. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.

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The Politics of FDI

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Recommendations And Suggestions To ponder over????

Should the initial cap on investment could be pegged at 49%?

Should FDI should be leveraged to create back-end infrastructure?

Can FDI curb inflation? To develop our rural sector ,should conditionalitys be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?

Some Difficult questions for which our policy makers Need to find the answers.
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